2013 Fall ConferenceSD Association of School Business Officials

GASB Updates and Annual Reports

Rod Fortin—Director of Local Gov’t Assistance Department of Legislative Audit300 S. Sycamore Avenue, Suite 102Sioux Falls, SD 57110-1323ph. (605) 367-5810rod.fortin@state.sd.us 1

GASB UPDATES GASB STATEMENT 63, Financial Reporting

of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position Addresses questions associated with display of

deferred inflows/outflows in balance sheet Terminology changes Describes the Statement of Net Position Does NOT expand usage of deferrals Effective Date: Periods beginning after 12/15/2011 Schools FY2013

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GASB UPDATES GASB STATEMENT 65, Items Previously

Reported as Assets and Liabilities Closely related to GASB 63 Initially intended to look back at whether any existing

assets & liabilities should instead be reported as deferrals

Effective Date: Periods beginning after 12/15/2012 Schools FY2014

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GASB 63 Identifies 5 elements that make up a statement of financial position:

Assets Liabilities Deferred outflows of resources Deferred inflows of resources Net position

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GASB 63This differs from what the composition currently required by Statement 34, which requires the presentation of

Assets Liabilities Net assets

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DEFINITIONSAssets: Resources with present service capacity that the government presently controlsDeferred outflows of resources: A consumption of net assets by the government that is applicable to a future reporting period Liabilities: Present obligations to sacrifice resources that the government has little or no discretion to avoidDeferred inflows of resources of resources: An acquisition of net assets by the government that is applicable to a future reporting period

DISPLAY REQUIREMENTS• Deferred outflows of resources should be reported in a

separate section following assets• Deferred inflows of resources should be reported in a

separate section following liabilities• Net position components resemble the existing

components of net assets, but also include the effects of deferred outflows of resources and deferred inflows of resources

• Net investment in capital assets• Restricted• Unrestricted

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ILLUSTRATION

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Statement of Net Position

Primary GovernmentGovernmental Business-type Component

Activities Activities Total UnitsASSETSCash and cash equivalents 11,712,829$ 10,516,820$ 22,229,649$ 303,935$ Investments 29,250,291 64,575 29,314,866 7,428,952Derivative instrument--rate swap 1,040,482 1,040,482Receivables (net) 11,792,650 3,609,615 15,402,265 4,042,290Internal balances 313,768 (313,768) —Inventories 322,149 126,674 448,823 83,697Equity interest in MSA joint venture 2,303,256 — 2,303,256 —Capital assets: Land, improvements, and construction in progress 28,435,025 6,408,150 34,843,175 751,239 Other capital assets, net of depreciation 141,587,735 150,980,601 292,568,336 36,993,547 Total capital assets 170,022,760 157,388,751 327,411,511 37,744,786 Total assets 226,758,185 171,392,667 398,150,852 49,603,660

DEFERRED OUTFLOWSAccumulated decrease in fair value of hedging derivatives — 127,520 127,520 —

LIABILITIESAccounts payable and accrued expenses 7,538,543 659,592 8,198,135 1,803,332Advances from grantors 1,435,599 1,435,599 38,911Forward contract 127,520 127,520Long-term liabilities: Due within one year 9,236,000 4,426,286 13,662,286 1,426,639 Due in more than one year 83,302,378 74,482,273 157,784,651 27,106,151 Total liabilities 101,512,520 79,695,671 181,208,191 30,375,033

DEFERRED INFLOWSAccumulated increase in fair value of hedging derivatives 1,040,482 — 1,040,482 —Unamortized service concession arrangement payments — 4,467,536 4,467,536 — Total deferred inflows 1,040,482 4,467,536 5,508,018 —

NET POSITION Net investment in capital assets 103,711,386 79,088,574 182,799,960 15,906,392Restricted for: Transportation and public works 10,655,737 — 10,655,737 — Debt service 3,076,829 1,451,996 4,528,825 — Housing and community redevelopment 6,845,629 — 6,845,629 — Other purposes 1,483,387 — 1,483,387 492,445Unrestricted (deficit) (1,567,785) 6,816,410 5,248,625 2,829,790 Total net position 124,205,183$ 87,356,980$ 211,562,163$ 19,228,627$

GOVERNMENTAL FUNDS Governmental Activities in Government-wide

Statements: Statement of Net Position:

assets + deferred outflows – liabilities – deferred inflows = net position

Governmental Fund Format: Balance Sheet:

Assets + deferred outflows = liabilities + deferred inflows + fund balance

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NOTE DISCLOSURES• Governments should provide details of different

types of deferred amounts in the notes if significant components of the total deferred amounts are obscured by aggregation on the face of the statements

• If the amount reported for a component of net position is significantly affected by deferred inflows or outflows, governments should disclose an explanation in the notes

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CHANGES• There are few items that GASB standards

require to be reported as deferred outflows/inflows of resources as of today:

• Statement 53–Derivative Instruments• Statement 60–Service Concession Arrangements

• NOT SO FAST…Statements 65, 67, 68 and 69 also have items that are reported as deferred outflows of resources or deferred inflows of resources.

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GASB STATEMENT 65 ITEMS PREVIOUSLY REPORTED AS

ASSETS AND LIABILITIES

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GASB 65—OBJECTIVE To determine whether certain balances currently

reported as assets and liabilities should continue to be reported as such or instead should be reported as: A deferred outflow of resources, or An outflow of resources (expense/expenditures)

OR A deferred inflow of resources, or An inflow of resources (revenue)

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DEFERRED OUTFLOWSTransactions in which the resulting item should be classified as deferred outflows of resources:• Resources advanced to another government in relation

to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the other government (paragraph 19 of Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions)

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DEFERRED OUTFLOWS• Deferred debit amounts resulting from the refunding of

debt (paragraph 5 of Statement No. 23, Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities, and paragraph 221 of Statement No. 62, Codification of Accounting Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements)

• The purchase of future revenues within the same financial reporting entity (paragraphs 13–16 of Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues)

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DEFERRED OUTFLOWS• Deferred loss resulting from sale-leaseback transactions

(paragraph 242 of Statement 62)

• Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for resale prior to the point of sale (paragraph 467 of Statement 62)

• Fees paid to permanent investors to ensure the ultimate sale of loans prior to the point of sale (paragraph 469 of Statement 62)

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OUTFLOWSTransactions in which the resulting item should be recognized as outflows of resources:• Acquisition costs for insurance entities and public entity

risk pools (paragraphs 28–30 of Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, and paragraphs 412–414 of Statement 62)

• Initial direct costs incurred by the lessor for operating leases (paragraph 227 of Statement 62)

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OUTFLOWS• Debt issuance costs (paragraph 12 of Statement No. 7,

Advance Refundings Resulting in Defeasance of Debt, and paragraph 187 of Statement 62)

• Net balance (debit) of direct loan origination costs, including any portion related to points, related to lending activities (paragraph 45 of Statement 10 and paragraph 434 of Statement 62)

• Fees paid related to a purchased loan or a group of loans (paragraph 442 of Statement 62)

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OUTFLOWS• Net balance (debit) of direct loan origination costs,

including any portion related to points, for mortgage loans held for investment (paragraph 467 of Statement 62)

• Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for resale after the sale occurs (paragraph 467 of Statement 62)

• Fees paid to permanent investors to ensure the ultimate sale of loans after the ultimate sale occurs (paragraph 469 of Statement 62)

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DEFERRED INFLOWSTransactions in which the resulting item should be classified as deferred inflows of resources:• Resources received in advance in relation to an imposed

nonexchange transaction (paragraph 18 of Statement 33)• Resources received in advance in relation to a

government-mandated nonexchange transaction or a voluntary nonexchange transaction when time requirements are the only eligibility requirements that have not been met by the receiving government (paragraph 19 of Statement 33)

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DEFERRED INFLOWS• Deferred credit amounts resulting from the refunding of

debt (paragraph 5 of Statement 23, and paragraph 221 of Statement 62)

• Proceeds from the sale of future revenues (paragraphs 13–16 of Statement 48)

• Unavailable revenue related to the application of modified accrual accounting (Statement No. 6, Accounting and Financial Reporting for Special Assessments, and Statement 33)

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DEFERRED INFLOWS• Deferred gain resulting from sale-leaseback transactions

(paragraph 242 of Statement 62)

• Net balance (credit) of loan origination fees, excluding any portion related to points, for mortgage loans held for resale prior to the point of sale (paragraph 467 of Statement 62)

• Net balance (credit) of loan origination fees related to points for lending activities and mortgage loans held for investment (paragraph 45 of Statement 10 and paragraphs 434 and 467 of Statement 62)

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DEFERRED INFLOWS• Resources generated by current rates intended to

recover costs that are expected to be incurred in the future (paragraph 482 of Statement 62)

• Gains or other reductions of net allowable costs intended to reduce rates over future periods (paragraph 482 of Statement 62)

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INFLOWSTransactions in which the resulting item should be recognized as inflows of resources:

• Net balance (credit) of loan origination fees, excluding any portion related to points, related to lending activities (paragraph 45 of Statement 10 and paragraph 434 of Statement 62)

• Commitment fees realized upon exercise or expiration of the commitment (paragraphs 437 and 438 of Statement 62)

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INFLOWS• Commitment fees charged for entering into an agreement

that obligates the government to make or acquire a loan or to satisfy an obligation of the other party under a specified condition when exercise is considered remote (paragraphs 437 and 438 of Statement 62)

• Fees received related to a purchased loan or a group of loans (paragraph 442 of Statement 62)

• Net balance (credit) of loan origination fees, excluding any portion related to points, for mortgage loans held for investment (paragraph 467 of Statement 62)

INFLOWS• Net balance (credit) of loan origination fees, including any

portion related to points, for mortgage loans held for resale after the sale occurs (paragraph 467 of Statement 62)

• Fees that are realized after the funding of mortgage loans has occurred or after the commitment to guarantee the funding of mortgage loans expires (paragraph 469 of Statement 62)

• Fees realized when a commitment is arranged directly between a permanent investor and a borrower (paragraph 470 of Statement 62)

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ASSETS– NOT CHANGEDIn the Basis for Conclusion the Board affirmed items resulting from the following transactions should be classified as an ASSET:• Prepayments (paragraph 73 of NCGA Statement No. 1,

Governmental Accounting and Financial Reporting Principles)• Resources advanced to another government in relation to a

government-mandated nonexchange transaction or a voluntary nonexchange transaction when eligibility requirements other than time requirements have not been met (paragraph 19 of Statement 33)

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ASSETS– NOT CHANGED• The purchase of future revenues from a government

outside the financial reporting entity (paragraphs 13–16 of Statement 48)

• Initial subscriber installation costs in relation to cable television systems (paragraph 398 of Statement 62)

• Capitalized incurred costs related to regulated activities (paragraph 480 of Statement 62)

• Circumstances in which a pension plan’s net position exceeds the total pension liability

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LIABILITIES—NOT CHANGEDIn the Basis for Conclusion the Board affirmed the items resulting from the following transactions should be classified as a liability:

• Resources received in advance in relation to a derived tax revenue nonexchange transaction (paragraph 16 of Statement 33)

• Resources received in advance in relation to a government-mandated nonexchange transaction or a voluntary nonexchange transaction when eligibility requirements other than time requirements have not been met (paragraph 19 of Statement 33)

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LIABILITIES—NOT CHANGED• Resources received in advance of an exchange

transaction (paragraph 23 of Statement 62)

• Excess of initial hookup revenue over of direct selling costs in relation to cable television systems (paragraph 397 of Statement 62)

• Premium revenues for insurance entities and public entity risk pools received in advance (paragraphs 19–21 of Statement 10, and paragraphs 405 and 406 of Statement 62)

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LIABILITIES—NOT CHANGED• Commitment fees charged for entering into an agreement that

obligates the government to make or acquire a loan or to satisfy an obligation of the other party under a specified condition, unless exercise is remote (paragraphs 437 and 438 of Statement 62)

• Fees that are received for guaranteeing the funding of mortgage loans (paragraph 469 of Statement 62)

• Fees received for arranging a commitment directly between a permanent investor and a borrower (paragraph 470 of Statement 62)

• Refunds imposed by a regulator (paragraph 482 of Statement 62)

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OTHER AREAS Use of the term deferred should be limited to

deferred inflows and deferred outflows of resources.

Major fund calculation guidance is amended Use aggregate assets/deferred outflows and

aggregate liabilities/deferred inflows in the calculation.

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Transaction Before Implementation of GASB 65

After Implementation of GASB 65

Gain/ Loss on Defeasance Previously deducted from/added to new debt liability

Deferred outflow/inflow of resources

Debt Issuance Costs Previously deferred charge (asset)

All costs except prepaid bond insurance are expensed as incurred

Certain (not all) resources received in advance in voluntary nonexchange transactions

Deferred revenue (liability) Deferred inflow of resources

Gain/Loss on Sale/Leaseback Transaction

Deferred charge (asset) or deferred credit (liability)

Deferred inflow or outflow of resources

Lending Activities Deferred revenue Deferred inflow of resources

Lending Activities (Origination Costs)

Deferred revenue Expense as incurred

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